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Monthly Archives: June 2013

≈ Comments Off on Why equities are treated as daughters and Real Estate as sons?

Recent data shows that Mumbai’s sex ratio at birth improved in 2012, rising from 917 girls per 1,000 boys in 2011 to 922 girls in 2012. While this is a positive sign, the sex ratio of India’s financial capital it is still far below the national average of 952. Of course, the 952 figure itself is an aberration because globally, the sex ratio is in favour of women. Only in a few countries, including India, there are fewer female births, indicating that the utterly reprehensible practice of female practice of female foeticide and infanticide continues.

The urge for a male progeny dates back to mythological times when king Dhritrashtra wanted a hundred sons. It’s an attitude which has got ingrained over the centuries and is unlikely to change overnight. Even if a girl is allowed to be born, she is seldom accorded the same rights and privileges enjoyed by male members of the family. She may work in the kitchen and help in household chores but is usually a second class citizen in her father’s house.

There is an uncanny similarity in the way daughters are treated in our patriarchal society and how the average Indian investor looks at stocks. Just as the girl child gets a raw deal in the family in terms of care and attention, stocks are given a disproportionately small allocation of the total household savings. Low-yielding physical assets such as gold and real estate gobble up the biggest chunk of household savings. According to an RBI estimate, physical asset (such as gold, real estate, etc) account for almost 50% of the total household savings. Equities, which have barely 5% share in household savings, have to make do with the leftovers.

Even if the son is a laggard and good for nothing, the parents usually turn a blind eye to his faults and pamper him. He can go anywhere and do anything he wants–nobody ever questions his actions and motives. The boy child is given everything without a thought to how much he contributes to the household economy. Ditto for investors who put the largest chunk of their money in gold and real estate thinking that these are safe options without ever assessing the returns from those investments.

And what about the girl child? She is treated as a liability from the very day she is born. Parents don’t want to spend too much on her because she will ultimately be married off. Unlike her brothers, the parents don’t give her too much freedom. The slightest indication of abnormal behaviour by the girl child sets the alarm bells ringing. Any rebellion is brutally dealt with. Equities get the same treatment. If they go up too fast, the investor wants to sell and book profits. If they decline for some reason, the investor wants to sell and contain his losses. Nobody wants to hold them forever.

The similarities don’t end here. Whenever a sacrifice has to be made, it is the girl child who is forced to do it. If the family can afford to teach just one child, the girl will have to drop out of school. Never mind if she is among the best students in her class. If someone has to stay at home to help in the household chores, it is invariably the girl child. Similarly, whenever one needs money, stock investments will be sacrificed at the altar of twice born gold and real estate.

It goes without saying that the country cannot realise its full potential if the girl child doesn’t get due attention. As for household finances, they will lag and inflation will eat into the purchasing power if equities don’t get a sufficiently thick slice of the savings pie. The Indian investors’ love for physical assets has led to a skew in the savings and investment pattern. This mindset needs to be overhauled. As the past six months have shown, even gold prices can go down. In 2008, even real estate prices came down. In some pockets, they still haven’t recovered.

Everyone has a sad story about how they lost money in the stock market. But does anyone ever talk about how they bought 18 karat jewellery thinking it was 22 karat? Has anyone analysed how gold saving schemes from the jewellery houses benefit the jeweller, not the buyer? For that matter, has anyone worked out the rate of return from the property which has doubled in value in 6-8 years? The few who go the distance fail to factor in the interest they paid on the loan or the tax that they have to pay on the proceeds. They only look at the buying price and the selling price and are content with a 9-10% return.

In recent times, the government has introduced a lot of curbs on investing in gold and real estate. The import duty on gold has been hiked and the threshold of wealth tax applicability on possession of gold has been lowered, bringing more people under the tax net. Investing in real estate attracts stamp duty, registration charges and property taxes which are gradually being raised.

On the other hand, the government has extended incentives, both for the girl child and investments in equities. Girls get free or subsidised education, cheaper travel and cash incentives for doing well in studies. Similarly, equity investments have been given several tax breaks, including tax exemption on long-term capital gains, tax deduction under Section 80C for specified funds and Ulips and additional deduction for first time equity investors under the Rajiv Gandhi Equity Savings Scheme.

A state with a favourable sex ratio is termed ‘progressive’ by the government. Is your investment portfolio also ‘progressive’? Does it have too many underperforming ‘boys’ and very few hard-working ‘girls’? If not, speak to a financial advisor right away and make sure you give equities the allocation they deserve.